A Basic Understanding of What Blockchain Is and How It Works

In the modern world, you see huge technological advancements taking place every day. While a new technological milestone is touched almost every single day, not every technology is considered disruptive. A lot was invented in the 20^th century but the impact that internet had on the world has not been matched by any other technology. It changed the world in the truest sense of the word “change”. A change close to that was then brought by smartphones. However, the technology that holds that same potential as the internet to change the world is blockchain.

Yes, this technology is taking its time to become prevalent and to be understood by people. Let’s get a basic understanding of what blockchain is all about.

A Basic Blockchain Understanding

To understand this concept, you first have to look at the word itself. It is a combination of two words: block and chain. The block here means a clump of data. These clumps of data are connected to each other through cryptographic rules, which you can call the chain. But what are these blocks and chains about? Why do they have to exist in the first place? The entire technology exists to record transactions on the internet. The information about transactions is what you can call data. Because blockchain records transactions, it is also called a public ledger.

So, every time a block is created in the blockchain, it is actually a clump of data that contains information about a certain number of transactions. What makes this technology interesting is the word “public”. So the record of this data is being maintained on public computers rather than a centralized server. This is why it is called a decentralized technology where every single transaction and block is being shared among thousands and millions of computers. When a new block is added to the chain on one computer, it has to be updated on every single computer connected to the blockchain.

Cryptocurrency Is Not Blockchain

Since the invention of this technology was also the invention of the first cryptocurrency i.e. bitcoin, the two are often used interchangeably by people. In the minds of the people, blockchain is cryptocurrency and cryptocurrency is blockchain. That’s not true at all. Blockchain is actually the technology on which cryptocurrency works. You can say that blockchain is the network of roads whereas cryptocurrency is only one of the many vehicles on those roads. On these roads, many other vehicles can move as is the case when you look at other cryptocurrencies like Ethereum, ripple, monero, etc.

The Concept of Mining

The most important concept in blockchain is mining. Miners are the people connected to the blockchain, providing their proof of work to solve cryptographic problems to create new blocks. What is a new block? A new block is a new clump of many transactions within a given timeframe. For a new block to be added to the blockchain, it has to be validated first. Who is going to validate this new block? That’s where the miners come in. They are the ones who validate a number of transactions (within a block) to validate the block and add it to the chain. For a miner to be a part of the network, it has to provide proof of work.

The miner will use powerful computers to solve extremely difficult mathematical problems. Doing so requires a lot of energy, time, and money to be spent. However, it is to be kept in mind here that many miners are fighting to solve the mathematical problem at the same time. Whoever solves the problem first is allowed to validate a new block. When this happens, the winning miner is rewarded in some way. In the case of bitcoins, the miner is rewarded in the form of some bitcoins and a transaction fee. When talking about Bitcoin, a new block in the chain is created every 10 minutes.

The Concept of Decentralization

You can see from how miners work that the validation of the new blocks depends on thousands and millions of computers. There is no one specific person who can validate all the transactions. At the same time, when a new block is validated by one miner, the ledger (blockchain) gets updated on every miner’s computer i.e. node. It is clear here that no one computer can have an influence on how blockchain works. On the other hand, the way most technologies work today have some centralized power taking care of the data of the users. Many examples can be given to prove that.

Why Blockchain Is Taking Time to be Prevalent

The reason why this technology is taking its time is because it will cause the vanishing of many businesses in the world. Some of the biggest giants of the world will cease to exist because of the coming of blockchain. Do you remember how telephones disappeared from homes when internet and smartphones arrived? The companies that made telephones had to find a different way to keep in business. The biggest impact that blockchain will have in the world is by removing the middleman. You will be surprised to know how many middlemen you deal with and pay money to every single day.

You book a ride through Uber and the company takes its commission because it lies in the middle. You make a payment for a purchase on the internet and the bank validates your transaction by charging a small fee. Buy a product from Amazon and the retail giant takes its commission for being the bridge between you and the actual maker of the product. When blockchain becomes prevalent, you will be able to pay the service providers and product makers directly without the involvement of the middleman. The amount of money you will save with this technology will be huge.

The reasons mentioned in the above passages cause the big businesses of today to resist the spreading of blockchain. They either don’t want this technology to flourish or want to create their own blockchains. When they have their own blockchains, the end consumers will still benefit because of reduced costs of goods, transactions, services, etc.

Bottom Line

At first, blockchain was only about recording transactions in a public database. Today, new potentials have been identified and almost any kind of data can be stored in the blockchain. More and more cryptocurrencies are being launched every day. There are social networks and video-hosting websites working on blockchain now. While it is taking its time, there is no doubt about the expert opinion that blockchain is the new internet.